Tuesday, June 5, 2012

How far character is important during the course of any credit investigation?

How
far character is important during the course of any credit investigation?

It is the duty and
responsibility of any banker to ascertain the eligibility of a customer during
the course of taking a decision to grant him a loan. Of course, the loan may be
for a small amount or for heavy amount involving millions of dollars. However, the
criteria for selection of a borrower for the purpose of lending are found to be
uniform.

In case of any failure on
the part of the customer in repaying his debts to the banker, the credit
manager who was instrumental in taking a decision to sanction the loan is found
to be indirectly responsible for wrongful selection of the borrower.

Normally the financial
institutions and banks are having great hopes on the abilities and capabilities
of the credit manager and while dealing with the money belonging to the banks,
the credit manager should take utmost care in selecting the borrower and during
the course of such selection process, he should explore maximum possibilities
in scrutinizing the credentials of the borrower by adopting several strategies.

In fact the purpose of
loan interviewing and credit investigation is to determine the suitability of
the applicant for availing the loan.

The credit manager should possess
the requisite knowledge about the five ”C”s of credit namely; character,
capacity, capital, conditions and collateral.

Character:

During the course of any
commercial lending, character refers to the client’s willingness to repay the
loan. Normally the repayment of any loan is purely dependent upon the
willingness on the part of the borrower to repay the debts apart from his determination
to repay. A person may be having the necessary willingness to repay; however,
on account of some unforeseen circumstances, he may not be in a position to
repay the loan and the reasons for his failure may be sometimes beyond his
control.

It can be seen that many
applicants are making thousands of promises when they are approaching their bankers
for the purpose of availing any loan. It has been found out that out of one
hundred borrowers; rarely 40 percent of the borrowers try their level best in
repaying their dues even during tough times.

An individual of good
character is found to be honest and works hard towards generating income through
his business and he has the determination to remit the debts due promptly in
time. In case of any delay on his part in remitting the debts, he informs the
reasons for such delay to the banker well in advance. Of course, honest
customers are hesitant and feel quite embarrassed to convey their inability to
remit their dues and many times they feel guilty in pleading with their bankers
during these circumstances.

As such, they take sincere
efforts in finding out some avenues by which they are able to repay the debts
in time without any delay.

In other words, the
persons who are lacking in character normally assign low priority in repayment
of their dues and they are least bothered about the mounting overdue in respect
of loan availed by them from their bankers.

The credit manager is in a
position to ascertain the character of the borrower by means of the following:

01.Enquiry with the neighbors, relatives,
friends and competitors

02.By reviewing their past history

03.By spending requisite time in interviewing
the customer through several questions

04.The customers, suppliers, creditors and
others are in a position to provide valuable insight into the character of any
prospective customer

In fact, among the five
“C”s, character is considered to be the prime factor and for a person having
good character, the remaining factors may not pose much problems.